JPMorgan: Two factors constrain the Fed's ability to initiate interest rate cuts, and final decisions often lag behind economic conditions.

According to BlockBeats, on May 7, JPMorgan pointed out that when the Federal Reserve is caught in a dilemma due to conflicting macroeconomic data, its final decisions often lag behind the situation. Trump has increasingly called for the Federal Reserve to lower interest rates, but the Fed is in a difficult position. JPMorgan analysts stated that there is almost no possibility of an interest rate cut as the Fed begins its May policy meeting this week, and the likelihood of a rate cut in subsequent meetings is also very low. JPMorgan believes that there are two reasons why Fed officials are constrained in monetary policy.

One reason is that rising inflation expectations make it difficult for the Federal Reserve to initiate interest rate cuts. The latest consumer inflation report shows that inflation rose 2.4% year-on-year in March, above the Fed's 2% target. Compared to future potential scenarios, this figure is still quite low: the one-year inflation expectation compiled by the University of Michigan is 6.5%. Trump's tariff policies are expected to increase consumer costs, which is a major driver of rising inflation expectations. Concerns triggered by the trade war have exacerbated the risk of stagflation, which is the possibility of the U.S. economy stagnating while prices continue to rise. In this situation, the Fed is actually caught in a dilemma, as it cannot simultaneously address both issues.

The second reason is that macroeconomic data has not yet shown the necessity for interest rate cuts. Currently encouraging data masks the issue of inflation expectations, and macroeconomic data continues to remain robust, and in some aspects even performs relatively strongly. Last Friday's unexpectedly positive April non-farm payroll report boosted investor confidence and drove the stock market up. In other words, the market is not pricing in an impending recession. JPMorgan analysts noted: 'The current forward price-to-earnings ratio of the S&P 500 Index (SPX) is 21 times, with expected earnings per share (EPS) growth of 10% this year and 14% next year. This does not reflect any significant concerns about a recession.'